Greek debt concerns continue to hit markets

MARKET FEARS showed no signs of abating yesterday as euro zone leaders gathered for a two-day summit in Brussels.

Widespread concern about the Greek debt situation persisted.

Irish and Portuguese 10-year securities yielded the most relative to German bunds since the euro’s introduction, while the single currency declined in value for the second consecutive day, shedding more than 1 per cent against the dollar.

Irish 10-year securities yielded 900 basis points more than bunds – the most since the foundation of the euro more than 10 years ago.

The yield on 10-year Irish Government debt hit highs of 11.71 per cent yesterday, while yields on Portuguese bonds for the same period reached 11.45 per cent after European Central Bank president Jean-Claude Trichet said the euro zone debt crisis threatened banks.

Spanish bond yields also rose, sparking fears about the potential contagion effect of any form of default by Greece on other euro zone countries.

Market uncertainty was also fuelled by disappointing data from the US, as figures showed that US jobless claims increased more than expected a day after US Federal Reserve chairman Ben Bernanke lowered the forecast for US economic growth.

Equity markets continued to suffer. Global stocks slid the most in three months while the Stoxx Europe 600 Index dropped 1.4 per cent to 264.31 in London – the gauge’s lowest level since mid-March.

National benchmark indices in every western European market fell. In Dublin the Iseq closed down more than 1 per cent, with only a handful of stocks finishing the day in positive territory.

The UK FTSE 100 slumped 1.7 per cent, Germany’s Dax declined by 1.8 per cent and France’s Cac fell 2.2 per cent.

Banks led the decline across Europe. BBVA, Spain’s second- largest lender, declined 5.5 per cent to €7.57. Italy’s Banca Monte dei Paschi di Siena dropped 5.1 per cent to €0.55 while Dexia lost 5.4 per cent to €2.06.

Meanwhile, the price of oil fell by more than 6 per cent after the International Energy Association announced it is to release 60 million barrels of oil from strategic government stockpiles in a bid to push down crude prices and underpin the global economy.

The announcement exacerbated investors’ fears about global growth. On the currency markets, the euro fell against most of the major currencies, falling as much as 1.6 per cent to $1.4127, the biggest drop since June 15th.

Today’s summit of euro-zone leaders will focus on the Greek debt crisis as Europe tries to stave off a Greek default.

Euro zone governments are in discussions with European banks and insurance companies to try to convince them to maintain their exposure to Greek debt when the bonds mature as part of a possible second rescue for Athens. – (Additional reporting: Bloomberg)